Universität zu Köln

Ludwig, Alexander and Zimper, Alexander ORCID: 0000-0002-3730-3086 (2014). Biased Bayesian learning with an application to the risk-free rate puzzle. J. Econ. Dyn. Control, 39. S. 79 - 98. AMSTERDAM: ELSEVIER. ISSN 1879-1743

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Abstract

Based on the axiomatic framework of Choquet decision theory, we develop a closed-form model of Bayesian learning with ambiguous beliefs about the mean of a normal distribution. In contrast to rational models of Bayesian learning the resulting Choquet Bayesian estimator results in a long-run bias that reflects the agent's ambiguity attitudes. By calibrating the standard equilibrium conditions of the consumption based asset pricing model we illustrate that our approach contributes towards a resolution of the risk-free rate puzzle. For a plausible parameterization we obtain a risk-free rate in the range of 3.5-5%. This is 1-2.5% closer to the empirical risk-free rate than according calibrations of the rational expectations model. (C) 2013 Elsevier B.V. All rights reserved.

Item Type:	Journal Article
Creators:	Creators Email ORCID ORCID Put Code Ludwig, Alexander UNSPECIFIED UNSPECIFIED UNSPECIFIED Zimper, Alexander UNSPECIFIED orcid.org/0000-0002-3730-3086 UNSPECIFIED
URN:	urn:nbn:de:hbz:38-447083
DOI:	10.1016/j.jedc.2013.11.007
Journal or Publication Title:	J. Econ. Dyn. Control
Volume:	39
Page Range:	S. 79 - 98
Date:	2014
Publisher:	ELSEVIER
Place of Publication:	AMSTERDAM
ISSN:	1879-1743
Language:	English
Faculty:	Unspecified
Divisions:	Unspecified
Subjects:	no entry
Uncontrolled Keywords:	Keywords Language EQUITY PREMIUM; EXPECTED UTILITY; MONETARY-POLICY; DYNAMIC CHOICE; ASSET PRICES; DOUBT; SUBSTITUTION; PROBABILITY; CONSUMPTION; AMBIGUITY Multiple languages Economics Multiple languages
URI:	http://kups.ub.uni-koeln.de/id/eprint/44708